WEBVTT - Surveillance: CPI Bolsters Bets on Fed Pause 0:00:00.120 --> 0:00:03.800 If you enjoy the Bloomberg Surveillance podcast, check out our 0:00:03.880 --> 0:00:08.959 new daily news program, the Bloomberg Daybreak Podcast. It gives 0:00:09.039 --> 0:00:12.840 you the day's top stories with context in just fifteen minutes. 0:00:13.240 --> 0:00:15.960 Look for it in your podcast feed by six a m. 0:00:16.160 --> 0:00:20.280 Eastern every morning. Subscribe on Apple, Spotify and anywhere else 0:00:20.400 --> 0:00:23.799 you get your podcasts, and stay tuned for a sample 0:00:23.880 --> 0:00:27.400 of today's edition of Bloomberg Daybreak at the very end 0:00:27.600 --> 0:00:36.040 of this podcast. This is the Bloomberg Surveillance Podcast. I'm 0:00:36.080 --> 0:00:40.120 Tom Keene, along with Jonathan Farrow and Lisa Abramowitz. Join 0:00:40.240 --> 0:00:44.400 us each day for insight from the best and economics, geopolitics, 0:00:44.400 --> 0:00:49.360 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:49.600 --> 0:00:54.080 Spotify and anywhere you get your podcasts, and always on 0:00:54.160 --> 0:00:58.520 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. 0:00:58.760 --> 0:01:02.200 It is a joy after pandemic that Abby Joseph Cohen 0:01:02.280 --> 0:01:05.920 dark in the door of our surveillance schools so a studio, 0:01:05.959 --> 0:01:09.120 I should say she is not with Goldman Sachs. It 0:01:09.200 --> 0:01:11.759 is a whole new world after all for the former 0:01:11.800 --> 0:01:15.759 Goldman Sachs partner professor at Columbia Business School and joins 0:01:15.800 --> 0:01:19.840 us after giving out bushels have ceased this term. Wonderful 0:01:19.880 --> 0:01:22.840 to have you in the studio. Abby once again, it's 0:01:22.880 --> 0:01:25.640 an abby Joseph Cohen market, and that you have to 0:01:25.680 --> 0:01:30.800 believe in optimism on the American economic experiment and within 0:01:30.840 --> 0:01:35.039 all the caution in gloom, equities will rise. Is this 0:01:35.120 --> 0:01:38.120 a bull market off the October lows? And is it 0:01:38.160 --> 0:01:40.919 a better time I had for the stock market? 0:01:42.080 --> 0:01:44.920 There are quite a few questions embedded in their tom 0:01:44.920 --> 0:01:47.400 and let me just say, I'm delighted to darken your door, 0:01:48.000 --> 0:01:51.320 so thank you for the invitation. I believe that what 0:01:51.360 --> 0:01:56.200 we're seeing is that investors are thinking differently than many 0:01:56.200 --> 0:02:00.680 of the talking heads. Many of the people who are 0:02:01.200 --> 0:02:04.760 required to make daily comments about what's happening. I think 0:02:04.880 --> 0:02:09.360 overreacted in some way to daily data or monthly data 0:02:09.880 --> 0:02:12.760 and forgot to look at things in context. So, for example, 0:02:13.800 --> 0:02:16.880 Michael did a great job of saying, here's where inflation 0:02:17.120 --> 0:02:19.640 is now, and let's put that in the context of 0:02:19.760 --> 0:02:22.400 where it was a year ago. And what we basically 0:02:22.440 --> 0:02:25.440 see is that that inflation is coming down. It takes 0:02:25.480 --> 0:02:29.080 pressure off of the FED to continue to raise interest rates. 0:02:29.400 --> 0:02:32.239 The other thing that we're seeing in the data, not 0:02:32.320 --> 0:02:35.640 necessarily every week or every month, is that there is 0:02:35.800 --> 0:02:39.720 ongoing economic growth in the United States. It has been 0:02:40.120 --> 0:02:46.560 surprisingly good, but not relative to consensus expectations, but not 0:02:46.600 --> 0:02:49.600 really a surprise when you think about the strength of 0:02:49.639 --> 0:02:53.320 the consumer. When the Fed began to raise interest rates 0:02:53.320 --> 0:02:57.440 more aggressively more than a year ago, the household balance 0:02:57.440 --> 0:03:00.000 sheet was in the best condition we have ever seen. 0:03:01.280 --> 0:03:05.360 Credit was in very good shape relative to income levels. 0:03:05.840 --> 0:03:09.119 And we also know that the employment situation has been 0:03:09.560 --> 0:03:13.639 good and has not really shown any deterioration. And in 0:03:13.720 --> 0:03:17.720 our US economy, that really is the base for economic growth. 0:03:18.040 --> 0:03:20.480 I wonder, especially on the heels of the CPI report 0:03:20.560 --> 0:03:23.040 that came in pretty much status quo, we are seeing 0:03:23.080 --> 0:03:26.480 some sort of disinflation. We also are still seeing that dynamism, 0:03:26.520 --> 0:03:29.200 with Wells Fargo CFO coming out this morning and saying 0:03:29.200 --> 0:03:31.680 that they're seeing an increase in card spending and real 0:03:31.800 --> 0:03:34.880 kind of strength there. You put these two together, do 0:03:34.920 --> 0:03:38.160 you now buy into the immaculate disinflation, this idea that 0:03:38.200 --> 0:03:42.160 you could get a new bull market and disinflation even 0:03:42.280 --> 0:03:43.560 if growth slows. 0:03:44.360 --> 0:03:47.520 I have been consistently in the camp that we would 0:03:47.520 --> 0:03:51.640 see some slowing in growth, but no recession, and that 0:03:51.720 --> 0:03:54.680 we could see inflation come down. And part of that 0:03:55.160 --> 0:03:57.440 is because I've had confidence in the FED that they 0:03:57.480 --> 0:04:01.440 would be paying careful attention to the data. And so 0:04:01.520 --> 0:04:03.640 when we think about what they may or may not 0:04:03.720 --> 0:04:08.920 do tomorrow, I think that they have the option to. 0:04:10.320 --> 0:04:11.760 I don't know if we're going to call it skip 0:04:11.840 --> 0:04:15.800 or pause. Let other people assign something to that. But 0:04:15.960 --> 0:04:18.240 the thing that I learned as an economist at the 0:04:18.240 --> 0:04:21.120 FED is we don't know how long it takes for 0:04:21.279 --> 0:04:26.080 monetary policy changes to actually affect the economy, and I 0:04:26.120 --> 0:04:29.000 think that they have already done so much. We already 0:04:29.000 --> 0:04:32.560 have an inverted yield curve. If I were voting, which 0:04:32.600 --> 0:04:34.719 I'm not, but if I were a voting member of 0:04:34.760 --> 0:04:38.440 the FOMC, I would vote for wait and watch well. 0:04:38.480 --> 0:04:40.599 And that seems to be what the consensus is. 0:04:40.720 --> 0:04:43.159 As far as as far as what. 0:04:43.120 --> 0:04:43.960 People are expecting. 0:04:44.000 --> 0:04:48.200 I am wondering as you advise the boards of public 0:04:48.240 --> 0:04:52.000 investment firms to try to understand how to position, would 0:04:52.040 --> 0:04:54.200 you say it's time to lean in, that it's time 0:04:54.240 --> 0:04:57.279 to actually bet on a broadening of the rally, that 0:04:57.320 --> 0:04:59.960 it's time to really understand that perhaps we're going to 0:05:00.120 --> 0:05:03.120 go back to something that's a lower yield reality. 0:05:03.360 --> 0:05:05.839 Yeah, I know that we're all focused on the fact 0:05:05.839 --> 0:05:08.480 that we're now back to where we were. I think 0:05:08.520 --> 0:05:11.200 the time to have made a really good decision was 0:05:11.320 --> 0:05:15.359 late last year or early this year, when everyone was 0:05:15.520 --> 0:05:19.279 so disturbed by what might happen and what I considered 0:05:19.320 --> 0:05:23.800 to be a low probability scenario. That was really the opportunity. 0:05:24.120 --> 0:05:27.480 And as I take a look at things now, I say, Okay, 0:05:27.600 --> 0:05:30.640 equity valuations are not as appealing to me as they 0:05:30.680 --> 0:05:35.120 were in November December because the pe has risen for 0:05:35.200 --> 0:05:38.880 the overall market. And so what I'm advising is balance 0:05:39.520 --> 0:05:42.480 Number One, we have an opportunity for the first time 0:05:42.520 --> 0:05:45.479 in ages in fixed income, and I would go with 0:05:45.640 --> 0:05:49.560 high quality, high quality corporates, treasuries and so on. You 0:05:49.600 --> 0:05:52.040 can get four or five percent return on a treasury. 0:05:52.360 --> 0:05:55.960 Not bad. Number Two in the equity market, I would 0:05:56.040 --> 0:05:59.640 be looking at some of the sectors that haven't performed well. 0:06:00.200 --> 0:06:02.520 You know, forty percent of the S and P five 0:06:02.600 --> 0:06:06.560 hundred roughly is it and communication, And these are the 0:06:06.600 --> 0:06:10.159 two sectors that have done so much better than the rest. 0:06:10.520 --> 0:06:14.599 So if you're concerned about relative valuation, there's some great 0:06:14.640 --> 0:06:18.320 opportunities in some of the more cyclical areas. And if 0:06:18.360 --> 0:06:21.359 people increasingly believe that there will not be a recession, 0:06:21.920 --> 0:06:23.839 that's where you start to look for opportunity. 0:06:24.080 --> 0:06:25.760 Just real quick here, do you think that the whole 0:06:25.800 --> 0:06:29.280 AI hype has been overplayed? That it's kind of starting 0:06:29.320 --> 0:06:31.120 to get a little concerning. 0:06:32.440 --> 0:06:37.160 I have been speaking to computer science professors and experts, 0:06:37.760 --> 0:06:42.120 and as I have an undergraduate degree in computer science, 0:06:42.200 --> 0:06:45.360 as ancient as that might be, and what they are 0:06:45.400 --> 0:06:50.480 basically saying is they're kind of nervous about how AI proceeds. 0:06:51.320 --> 0:06:53.760 There is the sense that if you put good data in, 0:06:54.040 --> 0:06:57.120 you'll get good results out. And what the scientists are 0:06:57.160 --> 0:07:00.520 saying is it's not true because the process that are 0:07:00.560 --> 0:07:04.640 being used are not really being properly regulated. They are 0:07:04.680 --> 0:07:08.000 advising pilot projects so we can see what happens. One 0:07:08.040 --> 0:07:11.080 of the common quickly time, if I may this Congress 0:07:11.240 --> 0:07:15.600 hasn't yet figured out how to regulate the Internet, and 0:07:15.680 --> 0:07:18.800 so we may be pretty far behind in terms of 0:07:18.840 --> 0:07:22.600 whether there should be some controls over AI. And I'm 0:07:22.640 --> 0:07:26.200 not talking about anything draconian. I'm just talking about guardrails, 0:07:26.600 --> 0:07:29.840 and our Congress hasn't yet figured out what to do. 0:07:30.000 --> 0:07:31.800 I got eight ways to go here, and I got 0:07:31.840 --> 0:07:36.360 forty seconds. Mister Costin at the shop downtown goes from 0:07:36.360 --> 0:07:39.520 four thousand to forty five hundred SPX. I don't want 0:07:39.560 --> 0:07:42.440 you to play the game he used to play at 0:07:42.520 --> 0:07:44.640 Goldman Sachs. But I do want you to tell me 0:07:44.760 --> 0:07:47.000 what the second leg of a bull market looks like. 0:07:47.240 --> 0:07:49.640 The first leg, as you alluded to, is easy money. 0:07:49.960 --> 0:07:52.920 What happens now in a second leg of a presumed 0:07:53.000 --> 0:07:53.559 bull market? 0:07:53.760 --> 0:07:56.480 Sure, I've been at that forty four to forty five 0:07:56.560 --> 0:08:00.560 hundred level since last December, so I'm not so in 0:08:00.600 --> 0:08:02.640 terms of what we have seen. So when I take 0:08:02.680 --> 0:08:05.480 a look now at David's forecast, which is very thorough, 0:08:05.840 --> 0:08:09.160 he's talking about an increase to about forty seven hundred, 0:08:09.440 --> 0:08:12.640 I think that's reasonable when I look at the profit outlook, 0:08:12.720 --> 0:08:14.640 and also what might happen to Peaes. 0:08:14.880 --> 0:08:17.760 Does Lee Boluncer and the rest of Columbia University know 0:08:17.880 --> 0:08:21.080 your game in the SPX off of Bloomberg terminal at school? 0:08:21.360 --> 0:08:22.360 Are you really doing that? 0:08:22.760 --> 0:08:23.360 I am not. 0:08:23.720 --> 0:08:24.960 You're not placing trades. 0:08:25.040 --> 0:08:26.200 I'm doing that at home, but. 0:08:27.000 --> 0:08:29.320 You're on the couch of the laptop at home. Had 0:08:29.400 --> 0:08:31.240 me Joseph Cohen on a day of inflation. 0:08:41.559 --> 0:08:44.559 Just check in with Sarah House. She's a senior economist 0:08:44.880 --> 0:08:46.800 at Wells Fargo. So, Sarah, we've had a couple of 0:08:46.800 --> 0:08:49.040 minutes here to digest this CPI data. 0:08:49.280 --> 0:08:50.360 What did you take away from it? 0:08:51.240 --> 0:08:53.400 Yes, So I think overall, when we look at the numbers, 0:08:53.520 --> 0:08:56.839 I think it's consistent with this inflation picture not getting 0:08:56.880 --> 0:08:59.960 any worse. In some ways we're seeing it maturely about 0:09:00.080 --> 0:09:02.160 or if you look at what's happening with the headline number, 0:09:02.480 --> 0:09:06.240 how that's stacking up against real average hourly earnings. But 0:09:06.440 --> 0:09:08.400 at the same time, when we look at the core numbers, 0:09:08.679 --> 0:09:11.240 there's still somewhat troubling. So we saw for a six 0:09:11.320 --> 0:09:15.800 consecutive month monthly increases of zero point four percent or higher. 0:09:15.880 --> 0:09:18.200 So still some work to be done on the part 0:09:18.200 --> 0:09:18.600 of the Fed. 0:09:19.520 --> 0:09:21.520 Well, the Fed's going to meet tomorrow. I know you're 0:09:21.520 --> 0:09:24.719 briefing Jr. Own Pal of twelve noon here, Sarah, how 0:09:24.720 --> 0:09:27.720 does this change the dialogue at the Federal Open Market 0:09:27.800 --> 0:09:28.640 Committee meetings? 0:09:29.760 --> 0:09:32.280 So, I don't think it changes the outcome of what 0:09:32.520 --> 0:09:35.920 was heavily signaled before going into the blackout period that 0:09:36.120 --> 0:09:39.360 the FED was likely to pause, skip, whatever you want 0:09:39.360 --> 0:09:42.040 to call it here in June. But I think it 0:09:42.120 --> 0:09:45.040 still keeps the door open to another hike in July, 0:09:45.280 --> 0:09:48.319 given that, yes, you have inflation coming down, but when 0:09:48.360 --> 0:09:50.720 you look at the core numbers that they're still troubling, 0:09:51.000 --> 0:09:55.960 troublingly high. So I think this is moderate enough to 0:09:56.040 --> 0:10:00.599 keep that compromise position going and buy J. Powell a 0:10:00.600 --> 0:10:02.880 little bit of time and hope that the numbers accelerate 0:10:03.000 --> 0:10:06.520 more clearly here over the next in intermeding period. 0:10:06.640 --> 0:10:08.840 Paul, and I see your read picker summing it up 0:10:08.880 --> 0:10:13.640 for Bloomberg News, and Bloomberg News reports slowest since March 0:10:13.800 --> 0:10:17.000 twenty twenty one. Okay, it doesn't get you back to 0:10:17.280 --> 0:10:21.920 now March of twenty twenty or even nineteen, but you know, 0:10:21.960 --> 0:10:24.000 I guess it's a move in the right direction exactly. 0:10:24.040 --> 0:10:25.760 So, I mean, Sarah, when we look at this, you know, 0:10:26.200 --> 0:10:29.960 ex Food and energy annualize at five point three percent, 0:10:30.040 --> 0:10:32.120 I mean again, that's that's higher than where the FED 0:10:32.160 --> 0:10:34.679 would like it to be. But put that in context 0:10:34.720 --> 0:10:37.200 with this two percent number that FED continues to throw 0:10:37.240 --> 0:10:40.720 out there is two percent of a realistic number these days, 0:10:40.800 --> 0:10:42.400 or would three percent be okay? 0:10:43.720 --> 0:10:46.839 So I think in terms of the official target, we're 0:10:46.880 --> 0:10:49.120 not going to see that change. So we have to 0:10:49.160 --> 0:10:52.199 step back and think. Okay, first, we're talking CPI numbers 0:10:52.200 --> 0:10:54.040 this morning, so that's probably more like two and a 0:10:54.120 --> 0:10:57.319 quarter versus the two percent, which matches a little bit 0:10:57.360 --> 0:11:00.800 better with with pc So I don't think we'll see 0:11:00.800 --> 0:11:03.080 a change in the official target. But I do think 0:11:03.120 --> 0:11:06.240 if we get down to maybe not three but somewhere 0:11:06.240 --> 0:11:08.000 closer to two and a half percent, I think that 0:11:08.080 --> 0:11:10.120 SID can live with that for a time if it 0:11:10.160 --> 0:11:12.319 means staving off a recession or at least mitigating the 0:11:12.400 --> 0:11:16.760 damage to the labor market. But I think this where 0:11:16.880 --> 0:11:19.640 you know where you're still looking at some numbers you know, 0:11:19.679 --> 0:11:23.040 at least double the fed's target by these consumer price 0:11:23.200 --> 0:11:27.400 index measures, whether PCE or CPI, that's still uncomfortably high 0:11:27.400 --> 0:11:27.800 for the FED. 0:11:28.040 --> 0:11:29.920 Key question. I don't want to get in trouble with 0:11:29.960 --> 0:11:33.480 Wells Fargo compliance, but we're going there anyway. Sarah House, good, 0:11:33.559 --> 0:11:39.080 do you extrap away the core CPI vector in a 0:11:39.200 --> 0:11:42.520 linear fashion where you get down to the level you 0:11:42.559 --> 0:11:46.120 just said a year out, two years out, two and 0:11:46.120 --> 0:11:49.120 a half years out, or can you get some form 0:11:49.160 --> 0:11:53.520 of convexity where we come down with greater rapidity. Can 0:11:53.559 --> 0:11:54.520 we pull that off? 0:11:55.480 --> 0:11:58.600 So I think we can see the pace of disinflation 0:11:58.760 --> 0:12:02.000 pick up over the remainder of this year and on 0:12:02.080 --> 0:12:05.600 into twenty twenty four. So one of the items propping 0:12:05.679 --> 0:12:08.760 up the core number today was a four point four 0:12:08.760 --> 0:12:11.760 percent gain in used vehicles. Don't expect that to last 0:12:11.760 --> 0:12:14.240 based on what's happening with the latest auction data as 0:12:14.240 --> 0:12:16.160 well as just what's happening in terms of the financing 0:12:16.160 --> 0:12:19.959 costs on consumers, what's happening on the inventory, the discounting side, 0:12:20.240 --> 0:12:22.360 and so between that and housing, I think you can 0:12:22.400 --> 0:12:28.559 get a much more discernible disinflationary path over the coming months. 0:12:28.640 --> 0:12:30.560 But I think in terms of getting it all the 0:12:30.559 --> 0:12:33.760 way back to that to two and a quarter percent 0:12:34.200 --> 0:12:37.640 rate that is on par with the fed's target, that's 0:12:37.679 --> 0:12:40.000 going to be probably a late twenty twenty four, maybe 0:12:40.000 --> 0:12:43.160 even twenty twenty five period. In terms of sticking that landing, 0:12:43.440 --> 0:12:45.959 you might hit it and bounce, but this is the 0:12:46.040 --> 0:12:47.719 landing is going to be about a year per one. 0:12:47.720 --> 0:12:52.360 Final question, this is the raving the raging question right now. 0:12:52.520 --> 0:12:54.760 I mean the form of Vice Chairman Richard Clareda says, 0:12:54.760 --> 0:12:57.680 forget about two point zero maybe there was a tailor 0:12:57.800 --> 0:13:00.480 rural reality of for years one point eight even we 0:13:00.480 --> 0:13:05.480 were subpar two percent for whatever reason you're saying that 0:13:05.760 --> 0:13:09.640 as a shop Wells Fargo says, two point x percent 0:13:10.360 --> 0:13:12.840 is just inappropriate and we have to have as a 0:13:12.960 --> 0:13:15.880 mission to get back to two point zero percent. 0:13:17.000 --> 0:13:19.480 I think that's the Fed's going to maintain that as 0:13:19.520 --> 0:13:22.360 they're in official target, but we think that they will 0:13:22.400 --> 0:13:26.319 implicitly be comfortable with something, you know, between two two 0:13:26.360 --> 0:13:29.319 and a half percent here over the next couple of years. 0:13:29.360 --> 0:13:32.520 That is going to be a multi year process to 0:13:32.080 --> 0:13:35.000 get inflation back down to where it averages two percent. 0:13:35.040 --> 0:13:36.520 But we think at the said we'll be able to 0:13:36.559 --> 0:13:38.960 live with something closer to two and a half percent, 0:13:39.080 --> 0:13:42.120 even if that official target is not going to change. 0:13:42.200 --> 0:13:44.680 When compliance call, Sarah, just you run them over to 0:13:44.720 --> 0:13:46.360 me and my cell phone, right, I'll be in this 0:13:46.480 --> 0:13:49.840 surveillance nap, but we'll straighten out that. That was very good, 0:13:49.840 --> 0:13:53.360 Sarah House. They're very delicate about some of the politics 0:13:53.360 --> 0:14:00.240 out there on this day of CPI and clearly an 0:14:00.280 --> 0:14:04.480 important day of inflation data in America and to be 0:14:04.520 --> 0:14:08.280 observed worldwide. It is good to speak to any Treasury secretary. 0:14:08.600 --> 0:14:11.400 Janet yellens occupied, So we'll do better with Jack glu 0:14:11.520 --> 0:14:15.400 the former US Treasury Secretary joins us this morning. Jack, 0:14:15.440 --> 0:14:18.840 thank you so much for joining Bloomberg and Bloomberg Surveillance. 0:14:18.880 --> 0:14:21.320 I'm gonna cut to the chase you were weaned on, 0:14:21.440 --> 0:14:24.840 Joe Moakley out of Boston and on the Great Tip O'Neill, 0:14:25.320 --> 0:14:30.400 and Tip O'Neill understood that technology drove things forward. He 0:14:30.440 --> 0:14:33.280 was a believer in the big system, the big vision. 0:14:33.840 --> 0:14:36.840 We come out of a pandemic, we have sky high 0:14:37.000 --> 0:14:42.560 inflation and the dynamics changing. Is this a normal inflation? 0:14:43.240 --> 0:14:46.640 Is this a normal dynamic that we should fear or 0:14:46.680 --> 0:14:52.240 can it lead to a better disinflationary trend, better productivity 0:14:52.560 --> 0:14:53.480 and better growth. 0:14:54.600 --> 0:14:56.720 So good to be with you, Tom, And I think 0:14:56.760 --> 0:14:59.520 it's fair to say that there's nothing normal about going 0:14:59.520 --> 0:15:03.880 into a coming out of COVID. It was an extraordinary 0:15:03.920 --> 0:15:08.320 period that required policies that no one had ever had 0:15:08.360 --> 0:15:11.720 to think about in our lifetimes before. So I don't 0:15:11.720 --> 0:15:14.560 think there's any surprise that coming out of it. It's 0:15:14.600 --> 0:15:20.920 a somewhat bumpy path with somewhat unpredictable duration in terms 0:15:20.920 --> 0:15:24.280 of where we're headed and how quickly we get there. 0:15:24.880 --> 0:15:26.680 I think what's clear is that there's been a trend 0:15:26.760 --> 0:15:29.480 down in inflation. You know, a lot of the inflation 0:15:29.520 --> 0:15:33.280 that was supposed to roll off slowly rolled off, But 0:15:33.360 --> 0:15:37.320 what's left behind is a lingering higher inflation rate. Then 0:15:37.720 --> 0:15:41.560 we would like. What we don't know is when all 0:15:41.640 --> 0:15:45.080 of the measures kick in, all of the higher interest rates, 0:15:45.120 --> 0:15:49.120 all of the effects of bank failures, where will we be. 0:15:49.400 --> 0:15:52.160 So I think the cautious approach is still the right one. 0:15:52.440 --> 0:15:56.680 We have room in the economy for some tightening. Unemployment 0:15:56.760 --> 0:16:00.920 is very low, we still have a strong but we're 0:16:00.920 --> 0:16:03.680 headed towards a slower patch. There's no question about that. 0:16:04.200 --> 0:16:06.480 And the question is will it or won't it become 0:16:06.480 --> 0:16:10.560 a technical recession. So I think that the data does matter, 0:16:11.360 --> 0:16:14.760 and I'm not sure today's news will be the last word. 0:16:15.000 --> 0:16:18.320 Jack lou the Painfully. My colleague John Parrell mentioned this 0:16:18.480 --> 0:16:20.560 on London and the rest of the United Kingdom in 0:16:20.600 --> 0:16:23.680 the last hour. There seems to be a separation in 0:16:23.760 --> 0:16:28.240 America to Americas that John Edwards talked about and advantage 0:16:28.320 --> 0:16:33.600 technology front America that really doesn't care about inflation, and 0:16:33.640 --> 0:16:37.880 then another America flat on its back. How separate are 0:16:37.880 --> 0:16:40.040 our two Americas now economically? 0:16:40.880 --> 0:16:43.360 You know, that's a good question, and I think there's 0:16:43.480 --> 0:16:46.840 lots of data points to show that it's a growing 0:16:46.920 --> 0:16:50.200 separation and a real problem. You know, you were talking 0:16:50.240 --> 0:16:53.560 a few moments ago about savings rates and what are 0:16:53.600 --> 0:16:58.120 the residual savings from pandemic support and from lower spending 0:16:58.160 --> 0:17:01.000 when people couldn't go out. It's very different if you're 0:17:01.040 --> 0:17:04.080 at the top or the bottom of the income spectrum. 0:17:04.320 --> 0:17:07.119 At the bottom that savings has been gone for a while. 0:17:07.320 --> 0:17:10.399 At the top, it isn't going away anytime soon. And 0:17:10.480 --> 0:17:12.560 I think that has a lot to do with what 0:17:12.920 --> 0:17:16.280 people can buy and what people can buy those things. 0:17:16.800 --> 0:17:19.600 So we do have to ask how different parts of 0:17:19.640 --> 0:17:20.679 the economy fairing. 0:17:21.160 --> 0:17:23.720 Although I do wonder how much the fiscal impulse is 0:17:23.760 --> 0:17:25.920 going to be severely constrained. Do you think that people 0:17:25.960 --> 0:17:29.720 appreciate how much the recent debt ceiling negotiations will constrain 0:17:29.800 --> 0:17:32.639 further fiscal spending or do you think that it basically 0:17:33.200 --> 0:17:36.240 was a band aid over something and basically didn't change 0:17:36.280 --> 0:17:37.240 the narrative in any way. 0:17:38.480 --> 0:17:42.800 So, Lisa, I think there will be lower spending on 0:17:42.880 --> 0:17:46.280 the appropriated side. That's going to have an impact on 0:17:46.440 --> 0:17:50.560 things that are very important in terms of providing services 0:17:50.960 --> 0:17:52.920 to the American people. So I don't want to say 0:17:52.960 --> 0:17:56.120 it won't have any fiscal impact. But the whole debate 0:17:56.320 --> 0:17:58.760 was over a small slice of the budget. It wasn't 0:17:58.800 --> 0:18:02.479 over revenues at all. It wasn't over the large entitled 0:18:02.600 --> 0:18:06.119 programs at all. So I don't think we should confuse 0:18:06.359 --> 0:18:09.840 the size of that deal, which was on the order 0:18:09.880 --> 0:18:12.440 of seventy five billion dollars a year for a couple 0:18:12.440 --> 0:18:18.360 of years of restrained spending, with what a true package 0:18:18.400 --> 0:18:27.080 of fiscal consolidation would look like. I think the question 0:18:27.320 --> 0:18:32.040 going forward is will there be continued stability in terms 0:18:32.080 --> 0:18:35.840 of the federal government not creating anxiety that affects both 0:18:35.880 --> 0:18:40.159 how individuals and businesses see the economic outlook. Part of 0:18:40.200 --> 0:18:44.800 the agreement was a kind of technical legislative provision to 0:18:44.840 --> 0:18:47.880 put pressure on Congress to pass all of the appropriation 0:18:48.040 --> 0:18:50.560 bills separately, which they haven't done since I was at 0:18:50.600 --> 0:18:53.960 a OMB and the Clinton years. Now, if that happens 0:18:54.040 --> 0:18:56.600 everything will go smoothly. If it doesn't happen, you face 0:18:56.680 --> 0:19:00.400 the prospect of government shutdown, of cuts in defense spending. 0:19:01.359 --> 0:19:03.720 The noise coming out of Washington in the last few 0:19:03.800 --> 0:19:07.080 days suggests to me that we're not necessarily done with 0:19:07.160 --> 0:19:09.920 drama coming from our capital. 0:19:10.560 --> 0:19:12.520 This is my shockface. I do think that people are 0:19:12.560 --> 0:19:15.720 expecting a bit more in terms of drama on this front. 0:19:15.760 --> 0:19:18.440 At the same time, when you talk about instilling some 0:19:18.520 --> 0:19:22.200 confidence in c suites of some predictability, I do wonder 0:19:22.240 --> 0:19:25.000 your response to future bank failures at a time when 0:19:25.000 --> 0:19:28.000 a lot of people are saying, basically, for all intents 0:19:28.000 --> 0:19:32.240 and purpose, there is a backstop at least depositors basically 0:19:32.240 --> 0:19:36.160 promised by the Treasury Department, and interference promised by the Fed. 0:19:37.840 --> 0:19:42.800 Well, look, I think they regulators and Treasury have made 0:19:42.880 --> 0:19:44.960 clear that they will do what they have to to 0:19:45.080 --> 0:19:51.280 prevent systemic crisis from occurring. They haven't been terribly clear 0:19:51.600 --> 0:19:54.240 whether that means in every single case. You know, there 0:19:54.280 --> 0:19:58.639 are continue to be normal workouts of troubled banks, so 0:19:58.760 --> 0:20:03.400 not everything is in the case of the regulators will 0:20:03.440 --> 0:20:06.480 step in. Look, I don't think we're done seeing the 0:20:06.520 --> 0:20:13.040 impact of higher interest rates on pressure on financial institutions. 0:20:13.440 --> 0:20:18.760 You add to that the pressure that comes from commercial 0:20:18.760 --> 0:20:23.639 real estate values being below where they were just a 0:20:23.680 --> 0:20:26.960 short period ago, So there's going to be some stress 0:20:27.040 --> 0:20:30.119 in the system. I think looking ahead, the thing that 0:20:30.359 --> 0:20:33.680 ought to happen is reflected in what policymakers have said, 0:20:33.720 --> 0:20:36.520 which is that there has to be more careful oversight 0:20:36.760 --> 0:20:42.800 of mid size financial institutions, particularly growing mid size financial institutions, 0:20:43.200 --> 0:20:46.120 so that we don't have as many surprises in the future. 0:20:46.480 --> 0:20:48.720 I don't know exactly what shape that will take, but 0:20:48.880 --> 0:20:51.840 I do think that's a very important discussion. And rolling 0:20:51.920 --> 0:20:54.560 back that oversight a few years ago I thought was 0:20:54.560 --> 0:20:56.439 a mistake at the time, and I was glad to 0:20:56.480 --> 0:20:59.320 hear that that thinking has changed back to we have 0:20:59.359 --> 0:21:00.359 to keep an eye on things. 0:21:00.520 --> 0:21:03.400 Jack. One final comment, We've got to say happy anniversary. 0:21:03.720 --> 0:21:06.040 It's almost ten years to the day that you unveiled 0:21:06.160 --> 0:21:09.320 a new signature. Can you believe that was a decade ago? Jack? 0:21:09.400 --> 0:21:10.840 Can you believe that was ten years ago? 0:21:11.720 --> 0:21:14.040 It is very hard to believe that it's ten years ago, 0:21:14.520 --> 0:21:15.359 isn't it amazing? T? 0:21:17.720 --> 0:21:22.160 And that's sure, is it's original, but it's changed. 0:21:22.400 --> 0:21:24.600 Go on, Jack, and I still get them when I 0:21:24.640 --> 0:21:27.240 go to the money machine that's. 0:21:27.160 --> 0:21:31.240 Old, the old ones Jack, or the new version with 0:21:31.320 --> 0:21:32.480 the new signature, you. 0:21:32.440 --> 0:21:34.840 Get a pretty good I only had one. There was 0:21:34.880 --> 0:21:35.760 only one signature. 0:21:35.840 --> 0:21:37.560 Oh so they never got the new that. They never 0:21:37.600 --> 0:21:38.680 got the new signature on that. 0:21:39.119 --> 0:21:41.200 I'd like a redo of this is possible. 0:21:41.920 --> 0:21:44.160 Can I just say that you've given my children hope, 0:21:44.280 --> 0:21:46.520 because they often will say when we're trying to develop 0:21:46.720 --> 0:21:48.840 a signature, they will look at yours and say, look, 0:21:49.080 --> 0:21:50.400 we can be creative with it. 0:21:50.480 --> 0:21:52.120 So literally, the only. 0:21:51.960 --> 0:21:54.120 Thing I say is, don't blame my grade school teachers. 0:21:54.119 --> 0:21:57.040 They try Jack Lou, thank you sir for being a 0:21:57.040 --> 0:22:00.040 good sport as well the former US Treasury secretary Jack. 0:22:10.880 --> 0:22:12.760 Right now, and this has been just a joy for 0:22:12.880 --> 0:22:15.440 us over the recent weeks. Wendy Schiller joins as director 0:22:15.480 --> 0:22:19.040 of Tubman Center, Brown University. Wendy were squeezed for time today. 0:22:19.080 --> 0:22:21.320 Let's just cut to the chase. It is truly an 0:22:21.320 --> 0:22:25.800 original moment. This is not in your classic textbook. How 0:22:25.800 --> 0:22:28.800 will you place a new chapter into your textbook? 0:22:29.440 --> 0:22:31.000 Well, in some ways I think that this is a 0:22:31.119 --> 0:22:33.640